"Electric competition is the next logical step in Pennsylvania's transformation to a job-friendly state," said then-Gov. Tom Ridge.
But shortly after the bill passed, the longest-serving member of the state Senate offered a different view.
"This is one of the most important pieces of legislation to hit the Legislature," said Clarence Bell, of Upland, the only Republican in that body to oppose the bill when it finally made it to the floor at 4 a.m. on the last day of the session. "There's not one senator who knows what's in it, including myself."
While the transmission and distribution of electricity would still be handled by PECO and the state's other previously regulated energy companies, the legislation gave Pennsylvanians the right to choose their electric generation supply company - no small point considering generation accounts for more than half of a customer's monthly bill.
"For some reason, proponents felt that regular consumers, and not just academics and free-market zealots, would have a strong desire to go out and shop for electricity like they did for plasma TVs and coffeemakers," said Lance Haver of the Philadelphia Office of Consumer Affairs.
Bell died in 2002, but with residential electric rates poised to jump 20 percent-30 percent in southeastern Pennsylvania when state-imposed rate caps expire Dec. 31, 2010, it appears his wariness was well founded.
"Everyone was expecting this vibrant market to emerge and I don't think anyone envisioned PECO being the only provider in an unregulated market in 2011," Haver said.
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As of July 1, just 3,506 of PECO Energy's 1.6 million residential customers in the Philadelphia area were purchasing power from alternative suppliers.
While there were more than a dozen companies competing for that business in 2001, many left the state when the high cost of wholesale electricity on the open market made it impossible to undercut rates offered by PECO and the state's other large energy companies.
"Pennsylvania seems to have experienced the same problem as other states, namely there aren't any alternative suppliers willing to serve residential customers," said George Lobsenz, executive editor of The Energy Daily, a leading energy industry trade publication. "The regulators have set the base-level prices so low that the alternative providers can't make any money. And when they are able to provide a lower rate, it's not enough to make someone want to bother to (switch providers)."
State Rep. Bill Adolph, R-165 of Springfield, said deregulation in 2008 is not what he pictured when he cast his vote 12 years ago. "The competition that the proponents of the legislation talked about never really got off the ground," he said. "If it did anything, it controlled prices for a decade."
Recognizing the devastating impact the rate hikes could also have on school and municipal budgets, some lawmakers have called for the caps to be extended for a year or more in order to come up with a comprehensive energy plan.
"Instead of delivering real competition, more customer choice and lower electric prices, electric deregulation in 2010 guarantees just two things: record rate hikes and record company profits," said state Sen. Lisa Boscola, D-18 of Northampton, who has called for a two-year extension of the caps.
While Bell's successor, state Senate Majority Leader Dominic Pileggi, R-9 of Chester, believes "market forces will ultimately determine prices," he said the Legislature will be looking at a variety of bills that aim to soften the blow to consumers.
"The process could be delayed, it could be influenced and it could be regulated," Pileggi said. "We will be taking it up in the fall and deciding the best way to approach it."
Relative bargain
Future shock notwithstanding, one of the architects of Pennsylvania deregulation, for mer Public Utility Commission member John Hanger believes consumers have made out very well in the cap era.
"PECO predicts rates will go up about 25 percent after 14 years. Is that massive?" said Hanger, president of Citizens for Pennsylvania's Future, a public interest group with an environmental focus. "Social Security has gone up 40 percent over the same 14 years. In constant dollars or inflation-adjusted dollars, electricity prices (in PECO's service territory) will be lower in 2010 than they were in 1996."
Of course PECO was charging some of the highest rates in the country before deregulation. Today, its customers are paying about 2 percent less than the national average.
Hanger said consumers "have saved billions from electricity restructuring," adding that enough new power plants have been built by alternative energy providers since 1999 to power nine million households.
"We are in the midst of a global energy crisis and electricity is the only energy commodity that hasn't gone through the roof," Hanger said. "Nobody wants to see prices go up, but people have to realize that natural-gas prices have increased seven fold over this period of time, coal four fold, petroleum four fold."
The stock of PECO's parent company, Exelon, has also gone through the roof, in part because of the state's decision to allow PECO to recoup more than $5.2 billion in stranded costs - essentially investments in nuclear plants that might not be recoverable in a competitive market.
"What really hurt the smaller companies was having to pay rent for the use of the major company's infrastructure," Adolph said. "That's why competition never worked out. The rent was too high."
Since Jan. 1, 1999, PECO customers have been paying a Competitive Transition Charge each month to cover those failed investments.
In the last five years, Exelon stock has more than tripled in value, outperforming even Exxon Mobil. Profits have been driven by the (unregulated) electricity generation segment of the business rather than energy delivery.
Watching your watts
No matter how the last 30 months of the cap era shake out, all parties agree conservation is essential.
"Customers should be acting now to conserve," Hanger said. "They should be buying Energy Star appliances, replacing incandescent light bulbs with compact fluorescent bulbs, making sure their homes are well insulated and reducing usage to keep their bills stable."
PECO Director of Communications Mary R. Rucci said the first step to conservation is becoming aware of usage.
"If you pay attention on a day-to-day basis, you can save money," she said. "Turning off your lights, making sure your electronics are off and not in stand-by mode, reducing your thermostat. It all helps."
While the Legislature and Gov. Ed Rendell recently agreed to create a $650 million fund to promote alternative energy generation, a bill that would allow consumers to purchase electricity at off-peak prices stalled in the senate.
House Bill 2200 would require power-generating utilities to cut their total energy output by 2.5 percent by 2013 and peak demand energy output by 4 percent by 2012. Another provision called for the installation of "smart meters" in every Pennsylvania home within 10 years.
The legislation was approved in the House, 152-45, but stalled in the Senate.
The time-of-use meters would allow customers to track electricity rates and tailor usage to avoid peak hours when prices are highest. Currently, PECO customers pay a flat rate that is based on the average price of electricity.
"The meters we use now are equipped to do time-of-use pricing," Rucci said. "When some people talk about smart meters, they are referring to meters that can be turned on and off remotely and interact with appliances.
"The technology in the home would have to improve to make that kind of leap."
PECO officials support time-of-use meters in addition to aggressive conservation and lead-management programs and expanded assistance for low-income customers. They would also like to see a phasing in of rate hikes in 2011.
In March, the company sought permission from the Public Utility Commission to begin a voluntary real-time pricing program that would allow up to 2,000 customers to save money by viewing the next day's energy prices and adjusting their habits to avoid peak hours.
"Failure to address the conservation side of the energy independence issue will have serious consequences for Pennsylvania down the road," said state Rep. Greg Vitali, D-166 of Haverford. "I think this is the most important environmental issue that was in the governor's Energy Independence Strategy proposal, and we need to push to make sure this gets done in September."
